As German Rush Ends, Solar Modules Continue Troubling Tumble

Solar module prices continued their downward trend in
July, falling by more than 2% over June's average prices and 44%
annually, according to the latest monthly module price report from IMS
Research (recently acquired by IHS Inc.).

PV module prices had
enjoyed a short period of stability in June due to high demand in
Germany and Italy, but they have begun to decline once again in the
second half of this year.

According to the report, average prices
of crystalline PV modules purchased from distributors increased by
almost 3% in June. The increase was driven by high demand in Germany,
the world's largest PV market.

Demand peaked in Germany in June
as developers rushed to connect systems by June 30, before the end of
the grace period for the country's previous, more attractive
feed-in-tariff (FIT) rates expired.

Distributors were able to
capitalize on strong demand, giving rise to higher pricing in the run-up
to the deadline, IMS Research adds.

The resulting slowdown in
demand following Germany's grace-period deadline, coupled with the bleak
outlook for demand in the second half of the year in Europe, meant that
module prices slipped again in July by 2.4%, according to the report.

Chinese
tier-one module prices declined by almost 3%, while the largest decline
came from Western suppliers, whose prices declined by more than 5%.

"PV
module prices enjoyed a rare period of stability in June, but are once
again under pressure, as demand in a number of core markets has weakened
in the second half of the year," says Sam Wilkinson, senior analyst in
IMS Research's PV group. "Although the industry has seen a number of
significant exits from the market in the recent months, supply of PV
modules still far exceeds demand, and suppliers are continuing to engage
in fierce price competition."

Module prices have consistently
declined throughout the year, but IMS Research says the outlook for
prices this month is positive. In fact, on average, industry buyers and
sellers expect prices to increase by 0.3% in August, according to the
results of an industry survey cited in the report.

However,
expectations varied clearly by company type: Module suppliers and
integrators tended to forecast an additional slight decrease in module
prices, while distributors surveyed expected a small increase.

"PV
module suppliers' margins are already dangerously low and, in some
cases, negative, and their ability to lower prices any further is
severely limited until they can make significant improvements to their
cost structures," Wilkinson notes.

Feeling the strain
These price pressures have been reflected in the financial performance of both Western and Chinese module suppliers. SolarWorld said earlier this week
that it would not achieve positive earnings this year, and as
second-quarter results have started to come in from other major
manufacturers, analysts and investors have expressed concern.

Canadian
Solar, for instance, posted numbers this week that were widely
described as disappointing. Despite faring better than some other
manufacturers at this time simply by not being in a state of bankruptcy
or insolvency, the company recorded a loss of $25.5 million, even as
solar module shipments increased to 412 MW.

Canadian Solar also
reported a gross profit of $43.2 million, compared to $63.7 million at
the same time last year. The continued fall of PV module prices, as
described in IMS Research's report, were - not surprisingly - to blame.

"The
year-over-year decline in gross profit was primarily due to the decline
in average selling prices over the past several quarters, partially
offset by lower manufacturing costs, higher shipment volume and the
positive effect of the warranty insurance adjustment," Canadian Solar
explained in its financial-results announcement.

Like many other
solar manufacturers, Canadian Solar is seeking to weather the storm by
bolstering its downstream business. During the second quarter, the
company completed construction of an 11.5 MW PV plant in Ontario - a
project that is expected to generate revenue in the third quarter.

"By
focusing on these manageable projects, we expect to reduce financing
and execution risks, and enjoy a greater level of predictability in our
business," said Dr. Shawn Qu, chairman and CEO of Canadian Solar, in the
financial statement.

Meanwhile, San Jose, Calif.-based SunPower, which has long made project development a part of its business model, was viewed as faring better than much of the rest of the module manufacturer pack.

For the second quarter, the company reported a net loss of $84.2 million. This figure represented an improvement over the second quarter of 2011, when SunPower posted a loss of $147.9 million.

SunPower "remains well positioned to gain share in the North American residential market and is making good progress on the cost-reduction front," noted Deutsche Bank analyst Vishal Shah in a research note. "The company is also likely to benefit from a flight to quality (modules and balance sheet) given superior technology, as well as [its] strategic partnership with Total."

The company is not, however, exempt from the difficult conditions in Germany and the rest of the European PV sector.

"Europe
remains a very challenging market, and we are looking at a number of
strategies to improve our long-term performance in the region," said Tom
Werner, CEO of SunPower, in the company's financial statement.

Several
other large publicly traded module manufacturers, including Trina Solar
and Yingli Solar, plan to announce their second-quarter results later
this month.

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